Flooring News and Information

Farnham, Quebec, Aug. 7�The board of directors of Domco Tarkett Inc. approved the corporation's unaudited consolidated financial statements for the second quarter of fiscal year 2001, which ended June 30. Unless otherwise stated, all dollar amounts are in Canadian dollars.

Consolidated net sales for the second quarter totaled $177 million, compared to $181.6 million, a decline of 2.5% from the previous year. Of this total, 84.3% of sales were generated in the U.S. market, compared to 85.4% for the same period last year. Had last year's exchange rates prevailed in 2001, sales for the second quarter of 2001 would have amounted to $170.5 million, a 6.1% decrease from the corresponding quarter in 2000.

For the first six months of the year, sales reached $340 million, an increase of 1.2% over the corresponding period a year ago. At constant exchange rates, sales would have declined by 3.0% for the first half of the year. The decline in sales reflects a mix of a robust performance in the hardwood segment, modest growth in distribution activities and a decrease in the resilient flooring segment.

Second quarter sales for the resilient flooring segment reached $127.3 million, compared to $141.3 million for the corresponding quarter last year. At a constant exchange rate, this figure would have been $122.9 million or 13% lower than last year. For the six month period ended June 30, Domco Tarkett posted sales of $246.9 million in the resilient flooring segment, compared to $259.9 million a year ago. At a constant exchange rate, this figure would have been $237.3 million or 8.7% lower than last year. This decline was particularly felt in the residential sector, while sales of commercial resilient flooring increased. The decline in the residential market has been going on for several quarters and reflects the growth of natural surfaces (wood, ceramics, etc.) in this segment of the market. The company is responding by developing new products that compete more effectively with these natural surfaces.

The hardwood flooring segment experienced healthy growth. For the quarter, Domco Tarkett posted sales of $49.7 million, compared to $40.3 million for the corresponding quarter the preceding year. At a constant exchange rate, this figure would have been $47.6 million, or an increase of 18% over the same quarter of last year. Sales were $93.1 million for the first six months of 2001, compared to $76.2 million a year ago. At a constant exchange rate, this figure would have been $88.9 million or 16.7% over the first six months of the year. The hardwood segment accounts for 28.1% of the second quarter consolidated net sales, compared to 22.2% in the second quarter of last year.

Sales related to distribution activities totaled $21.4 million, compared to $20.4 million a year earlier. This 5% growth is attributable to the acquisition in late March of assets of HFI Hardwood Flooring Inc., a hardwood flooring distributor serving Western Canada. Sales for the first six months of 2001 were $39.3 million, compared to $37.7 million for the corresponding period last year.

Consolidated gross margin reached 30.2% of sales, compared to 31.8% for the same period last year. For the first quarter the decline was from 32.2% to 30.2%. This decline is caused by the strong growth in the hardwood segment for which the margin is lower than in the resilient segment. Other contributing factors include rising raw materials and energy costs, as well as the sale of slow turning inventory, mainly in the first quarter.

Administrative, distribution and selling expenses amounted to $37 million (or 20.9% of consolidated sales), compared to $39.1 million (or 21.5% of consolidated sales) for the same quarter one year ago. After elimination of the impact of exchange rate variations, the decline in administrative, distribution and selling expenses was $3.3 million. For the first six months of the year, expenses declined by $1.4 million, or $4 million after eliminating the impact of exchange rate variations. This improvement results from tighter control of operating expenses as well as plant and administrative personnel downsizing under a cost reduction program.

For the quarter, Domco Tarkett reported earnings before interest, taxes, depreciation and amortization (EBITDA) of $16.4 million (or 9.3% of consolidated sales). In the second quarter last year, this figure was $18.6 million (or 10.3% of consolidated sales). For the second quarter, EBITDA was $29.6 million (8,7% of sales) compared to $33.8 million or 10.1% of sales for the first half of the preceding year.

Net earnings for the quarter were $4.5 million, or $0.17 per share, compared to $6.3 million, or $0.25 per share, for the corresponding quarter last year. For the first six months of the year, net earnings were $6.4 million, or $0.25 per share, compared to $10.3 million, or $0.40 per share, one year before.

�Even though our results still lag behind last year's, our restructuring efforts are starting to show progress and quarter to quarter comparison shows that we�re catching up,� said Ulf Mattsson, president and CEO of Domco Tarkett. �We�re successfully reducing overhead expenses. We intend to continue our efforts to improve profitability; however, we don�t anticipate any dramatic improvement in the economic environment, raw material prices or energy costs. We nevertheless expect that Domco Tarkett's results for the second half of 2001 should be better than the corresponding period last year."